South Korea’s Financial Services Commission (FSC) has unveiled new regulations to increase transparency and bolster investor confidence in the cryptocurrency market. Starting in January 2024, corporations that issue or hold cryptocurrencies must disclose comprehensive information in their financial statements.
Under the new rules, cryptocurrency issuers must publicly disclose details regarding the quantity and characteristics of their crypto tokens and their business models and internal accounting policies related to the sale of cryptocurrencies and associated profits. Furthermore, businesses that hold tokens as investments must provide information on the token’s category, book value, and market value.
One significant change these regulations bring concerns the recognition of revenue from the sale of issued cryptocurrencies. Previously, there needed to be more clarity around whether businesses could immediately book the proceeds as revenue.
However, the new standards clarify that sales will only be recognized as profits if all commitments to the buyer, including the distribution of bonuses or benefits linked to the purchase, have been fulfilled.
The Korea Accounting Standards Board, after evaluating the proposed standards, accepted them on July 7, as announced by the FSC on Tuesday. The South Korean regulators hope these restrictions will enhance investor confidence and foster the growth of the local crypto sector.
South Korea has played a prominent role in the global cryptocurrency market, with a disproportionately high number of investors from the country. At the end of 2022, the Korean won ranked as the third most popular currency for Bitcoin (BTC) transactions, following the US dollar and the Japanese yen, according to Xangle, a cryptocurrency analytics platform.
Amidst the rising number of cryptocurrency-related crimes worldwide, the need for accounting transparency in digital currencies has become increasingly pressing. In 2022 alone, Chainalysis reported that the total value of cryptocurrency sent to illegal addresses reached US$20 billion, a substantial increase from the US$5 billion recorded in 2017.
Wemade, a South Korean blockchain-based gaming company, recently exemplified the significance of transparent accounting practices. The company’s accounting firm determined that selling their WEMIX cryptocurrency should not be classified as income.
Consequently, Wemade revised its previously published financial statement, omitting 40% of its 2021 annual revenue. This unexpected development caused widespread uncertainty among investors.
With the implementation of the new regulations, South Korea aims to address these challenges and create an environment that promotes trust and stability in the burgeoning cryptocurrency industry. The FSC hopes to safeguard investors and further develop the country’s crypto market by mandating comprehensive disclosures.
